Tribunal rules in favor of employer on PF & ESI contributions dispute

The Tribunal held that the disallowance of Rs. 3,26,330/- for delayed payment of employees' contribution to PF & ESI was not justified as the contributions were paid before the due date for filing the return. The Tribunal referred to precedents emphasizing that expenditure should be allowed when payments are made and not treated as deemed income for belated payments. Additionally, the Tribunal clarified that the amendments introduced by the Finance Act, 2021, regarding Sections 36 and 43B did not apply to the assessment year under consideration. Consequently, the Tribunal allowed the appeal, directing the deletion of the disallowance.

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Issues Involved:
1. Disallowance of Rs. 3,26,330/- for delayed payment of employees' contribution to PF & ESI.
2. Applicability of amendments made by Finance Act, 2021 to Sections 36 and 43B.

Issue-wise Detailed Analysis:

1. Disallowance of Rs. 3,26,330/- for delayed payment of employees' contribution to PF & ESI:

The assessee, engaged in the export of readymade garments, filed a return declaring an income of Rs. 20,17,920/-. The CPC processed the return and made an adjustment of Rs. 3,26,330/- for delayed payment of employees' contribution to PF & ESI, increasing the income to Rs. 23,44,250/-. The assessee filed a rectification application under section 154, arguing that the contributions were paid before the due date for filing the return under section 139(1) and cited the tax audit report which had no adverse comments. However, the DCIT, CPC rejected the application.

Upon appeal, the Ld. CIT(A) upheld the disallowance, relying on the decision in CIT vs. M/s. Bharat Hotels Ltd., stating that the assessee is not entitled to deduction under section 36(1)(va) for delayed payments, emphasizing that keeping government money is against the spirit of the law.

The Tribunal noted that the assessee paid the contributions before the due date for filing the return under section 139(1). The Tribunal referenced several decisions, including CIT vs. AIMIL Ltd., which held that legislative intent was to allow the expenditure when the payment is made, not to treat belated payments as deemed income under section 2(24)(x). The Tribunal also cited the case of Insta Exhibitions Pvt. Ltd., where it was held that if the contributions are paid before the due date of filing the return, no disallowance should be made.

2. Applicability of amendments made by Finance Act, 2021 to Sections 36 and 43B:

The assessee's counsel argued that the amendments in Sections 36 and 43B introduced by the Finance Act, 2021, effective from 01.04.2021, apply to A.Y. 2021-2022 onwards. The amendments clarified that provisions of Section 43B do not apply to employees' contributions and deemed to never have applied for determining the due date. The Tribunal noted that these amendments are not applicable to the assessment year under consideration (A.Y. 2018-2019) and referenced the "Notes on clauses" of the Finance Bill 2021 to support this interpretation.

Conclusion:

The Tribunal found that since the assessee deposited the employees' contributions before the due date of filing the income tax return, the adjustment made by the A.O-CPC was not justified. The Tribunal set aside the order of the Ld. CIT(A) and directed the A.O. to delete the disallowance of Rs. 3,26,330/-. The appeal of the assessee was allowed.

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